The RBI monetary policy committee has raised the financial year 2027 inflation projection by 50 basis points to 5.1 per cent
The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has raised the financial year 2027 inflation projection by 50 basis points to 5.1 per cent. The MPC noted that elevated energy and other commodity prices, coupled with continued supply disruptions, are likely to affect economic activity,
The MPC has set the inflation projections for Q1 at 4.2 per cent, Q2 at 5.1 per cent, Q3 at 5.9 per cent and Q4 at 5.4 per cent. Importantly, the MPC has also said that the food outlook remains uncertain on account of the sub-normal south-west monsoon forecast and El Niño.
“The partial pass-through of high global crude oil prices to domestic pump prices of petrol and diesel started since May. Prices of several inputs such as commercial LPG, industrial raw materials, chemicals, base metals, rubber and plastic products, among others, have increased. These could exert upward pressure on CPI inflation in the coming months as firms pass on higher input costs,” Sanjay Malhotra, Governor, RBI, said during his address.
Rising Prices Impacting Growth Prospects
Headline CPI inflation inched up to 3.4 per cent in March and 3.5 per cent in April 2026, primarily due to higher food inflation. Fuel inflation remained modest as retail fuel prices largely remained unchanged in March and April despite the sharp spike in international energy prices.
“Compounded by a sub-normal monsoon forecast and El Niño risks, the RBI chief noted considerable risks to both growth and inflation, choosing to remain strictly data-dependent until greater clarity emerges. Although current CPI inflation remains below target, baseline projections indicate it could firm up to the upper range of the tolerance band by Q3FY27 due to an uncertain food price outlook and potential second-round generalisation effects,” stated Sumit Singhania, Head of Research, Bajaj Broking.
Core (CPI excluding food and fuel) inflation remained unchanged at 3.7 per cent during January to April. Excluding precious metals, core inflation remained much lower at 2.1-2.2 per cent. This indicates that the input cost pressures, as reflected in a sharp increase in April WPI, have not yet fully manifested in CPI, the MPC noted.
“The RBI will remain watchful of the price movement in the coming months. By keeping the policy rates unchanged, it is preserving its monetary ‘armor’ to fight the inflation war as and when it happens. This is prudent because a premature rate hike could break the credit growth momentum that has lately been picking up,” explained Rumki Majumdar, Economist, Deloitte India.
The central bank added that, however, since May, retail fuel prices have been raised cumulatively by 7.4 per cent for petrol and 8.4 per cent for diesel. The increase implies a direct impact of about 36 basis points on headline inflation, which, along with second-order effects, would get reflected in CPI inflation in the coming months.
Broader Economic And Repo Rate Status
The MPC has lowered the real gross domestic product (GDP) growth outlook for the current financial year to 6.6 per cent from its earlier projection of 6.9 per cent set in April 2026. The apex bank has again raised concerns stemming from the West Asia crisis. The real GDP growth for Q1 has been projected at 6.6 per cent, with Q2 at 6.3 per cent, Q3 at 6.5 per cent and Q4 at 6.8 per cent.
The MPC voted unanimously to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 5.25 per cent. Consequently, the standing deposit facility (SDF) rate remains at 5 per cent and the marginal standing facility (MSF) rate and the Bank Rate remain at 5.50 per cent. The MPC also decided to continue with the neutral stance.
“RBI expectedly kept the rate and stance unchanged, while highlighting the amplified risks on the inflation front. We expect 50 bps of rate hike beginning in October. On the positive side, the measures taken by the RBI to attract capital would help ease pressure on the Indian Rupee,” highlighted Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank.
Rising Threat From Weak Monsoon
The projections of a weak monsoon season is also adding to the concerns of the apex bank. Highlighting that while overall kharif acreage is expected to remain resilient, a report has stated that the season faces a triple threat of a below-normal monsoon, pest outbreaks and fertiliser constraints. Below-normal rainfall during July-September is expected to create productivity risks, as this period coincides with critical yield-forming stages.
Crisil said in a report that while July is primarily associated with crop establishment and vegetative growth, August and September coincide with flowering, fruit setting, pod development and boll formation stages, making crops increasingly vulnerable to moisture stress as the season progresses.
“Although inflation remains within the target range of plus/minus 4 per cent, geopolitical risks affecting global supply chain have increased, dampening GDP growth prospects for FY2027, but the Indian economy still remains resilient with strong domestic demand says Rajeev Juneja, President, PHD Chamber of Commerce and Industry (PHDCCI).
Higher temperatures, combined with uneven rainfall during the season’s first half, are expected to intensify pest and disease outbreaks across crops such as chilli, cotton, soyabean, pulses and vegetables. This increased pest pressure is likely to boost demand for insecticides, supporting growth in the agrochemical sector.
However, persistent dry spells may force farmers to delay or skip pesticide applications to reduce input costs, which could temporarily temper demand.
“We appreciate that amid heightened global uncertainties, including geopolitical tensions in West Asia and their potential impact on energy prices, trade flows and inflation dynamics, the RBI has chosen to maintain policy flexibility,” added Saurabh Sanyal, Secretary General, Associated Chambers of Commerce and Industry of India (Assocham).
Consumer Prices Set To Rise
While the MPC says that CPI inflation remains below the target despite the global shock, as the passthrough to domestic prices has been limited, companies are gearing up to tackle the inflation devil through price increases.
Prices of essential consumer products are expected to rise further in the coming months as companies continue to grapple with mounting inflationary pressure on raw materials, according to a report by Systematix Research.
The report stated that companies across several consumer categories have already increased product prices by an average of 3 to 7 per cent over the past one to two months after raw material basket costs surged by nearly 8 to 10 per cent on average.
Systematix Research said further price hikes and grammage reductions are highly likely in the food and beverage (F&B) as well as home and personal care (HPC) segments as companies seek to protect profitability amid elevated input costs.
“We believe further price hikes/grammage cuts are highly likely near-term in F&B/HPC products as companies scramble to offset the inflationary impact with a combination of pricing, mix and cost savings,” the report stated.
According to the report, pricing-led growth is expected to play a bigger role in the revenue growth of consumer staple companies during the first half of FY27, with pricing and volume contributions likely to remain evenly balanced at around 50:50.
